tv Discussion on U.S. Postal Service E- Commerce CSPAN March 27, 2019 5:29am-6:53am EDT
biographers on frederick douglass discussing arthur ashe. author melanie hatter. and the book freedom fighters and held razors. charles marsh with can i get a witness. and authors lori anderson with shout and jason reynolds with his book, long way down. watch coverage of the inia festival of the book saturday at 1 pm eastern on book tv on c- span2. >> now a discussion on the u.s. postal service and e-commerce. topics include the increasing rate of business conducted online. the impact on the postal service. revenues associated with packaged delivery services. and competition. the information technology and innovation foundation hosted the event. it is one hour 20 minutes.
>> good afternoon everyone. and president of the information technology and innovation foundation. and i am really pleased to welcome you today to i tif's event on better understanding of e-commerce and postal reform. how many people here have gotten something in the mail to you ordered through e-commerce in the last week? how about this morning? several of us. i looked at my deliveries in the last few days, for family, light bulbs, guitar strings, book on japanese technology and
some household supplies. that is really the more world we are moving into. e-commerce packages are a more important issue. this really ties into the question of postal reform. the united states postal service has been losing money because of the decline of first- class mail. and that has led to a lot of calls for reform. it's important to understand that even though we are all getting packages and being able to enjoy the delivery convenience of usps, mail accounts for 70% of usps revenues today and packages 30%. u.s. mail service is still a mail service, the packages are an increasing share. because of the issues around usps losing money, there is a wide array of reforms that have been proposed, everything from worksharing, reducing the number of days per week that mail is delivered, closing
rural post offices, curbside delivery, and an array of other ideas which a number of people in congress are looking at. but one issue that has been in the news recently, that is the issue of how should the postal service be pricing package delivery? we have a really great panel today to talk about that. i'm going to make some opening remarks and then we'll hear from our panel of experts. let me start by introducing on my immediate left, ed hutchins who is the research director at a think tank called the heartland institute. i followed his work for 20 years. we have both been doing postal reform for 20 years. and i encourage you to buy his books, get them delivered online. before ed was at the heartland, he was director of the atlas
society and also the director of regulatory studies and the editor of regulation magazine at the cato institute and earlier at the joint economic committee in congress. he has a phd in political economy. next to him is jim, jim is chief of staff of the national association of letter carriers. these are the folks who go out every day in the rain, snow and sleet. and they deliver our mail. i think they're one of the most popular occupation groups in the highest positive feeling of anyone in america. >> i think we came in second to the pope once. >> it depends what year it was. he directs nlc research collective bargaining and public policy and has been doing that since 1985 when he
joined as an economist. he has a masters degree from johns hopkins university. finally we are joined by kate who unfortunately ashley with ebay came down ill today with probably the flu that everyone seems to be getting. but we are lucky that kate could join us. she is director of government and regulatory affairs for pitney bowes which is eight mail service provider. she also has a long career on the hill, she has a degree from the university of maine law school. where are we? why are we talking about this issue? really one reason we're talking about this issue, and it's the reason we talk about most issues in the country, and that is president trump. in december 2017 the president tweeted, and i quote, why is united states post office which is losing many billions of
dollars per year while charging amazon and others so little to deliver the packages making amazon richer in the post-offer office dumber and poor. we should be charging much more in caps. a few months later in april of last year the president issued an executive order calling for a task force on usps reform. to, among other things, examine the expansion and pricing of package delivery market in the usps role in competitive markets. that task force issued their report in december, and among the many, many recommendations it dealt with a whole set of issues around usps, it had a particular focus on package delivery and e-commerce. it said, the usps's ability to price last mile delivery and the delivery of the package, of small packages below the private sector distorts package markets. so this has led to a new debate
about how should usps be pricing packages? we argued in a report, why the postal service is not subsidizing packages, i think guess with the messages is, we believe the critique is wrong. i'm going to go over a few highlights and then turn it over to the panel. the should be no doubt that usps because it operates the monopoly, a first-class mail, as well as the competitive business like packages that under no circumstances should it unfairly subsidize package shipments. to gain competitive advantage over private shippers. we have said that for 20 years. ed, you have said that. in fact the evidence shows usps is not getting taken to the cleaners. they are making a significant profit if you will on packages, $7.6 billion last year. that money was above and beyond
what it costs them to deliver packages and they use that money to help offset the usps financial losses from the declining first-class mail business. usps is also raising prices faster than its competitors. the idea that somehow they are underpricing in order to gain market share really doesn't appear to be the case. the postal regulatory commission, which is the body set up by congress to regulate and oversee the postal service so that they can't do whatever they want with regard to pricing, and services, it found that from 2014 through 2019 that the cumulative increase in package pricing for usps was slightly higher than at ups at 34.18% versus 33.4%. so they are raising prices. this gets down to two central questions. when you look at the
administration's task force report. the first question is, is usps abiding by the law? in 2006 congress understanding that there needed to be reforms at the postal service has the past the postal accountability and enhancement act. that set among other things new rules regarding packaging pricing. the second question is, did congress get the lot right? let's look at the first one. on the first issue, is usps complying with the 2006 congressional law? the answer is, 100% clear that they are. the prc for example look at that extensively and concluded after a thorough study "there is no evidence the postal service is engaged in predatory pricing." in other words pricing below cost in order to gain market share. moreover, in may 2018 the u.s. court of appeals for the district of columbia ruled in favor of the prc in the
complaint brought by ups that asserted usps was unfairly competing in packages. the court rule that the commission of exercise was reasonable and reasonably explained. in addition, under the 26 law 2006 law the postal regulatory commission established what is called an institutional baseline contribution. in other words, costs that are directly allocated to something with a particular cost. for example if usps has a truck only doing packages, it's clear to allocate all of the cost of that truck to packages. but things like maybe marketing or executive time, how do you allocate? prc said usps had to have a 5% 5.5% institutional baseline contribution. usps has exceeded that every year since. in 2017 they were able to not
just do 5.5% of institutional baseline but 23.2%. so they are way ahead of where prc is. in fact prc proposed raising the formula at 10.8%. they are way ahead of that. in fact parcels, e-commerce packages, according to the prc covered 53% more than the costs. now, this leaves the question did congress get it right? especially in terms of how they define institutional costs? i get that this gets economics complicated quickly, but think about it, have always other costs are they all going to be borne by first class, third class, packages? how do you allocate that? congress mandated the package delivery must cover both actual direct and indirect. what they did is they said that
institutional costs should be allocated based upon some estimate of overall cost. what the task force recommended is something quite different. and really in many ways radical. the task force says the prc and the usps should develop a new cost allocation approach. what they term fully distributed costs. in other words if packages account for this much revenue, directly or indirectly the cost should be institutional costs allocated. in other words, you don't allocate costs based on what you think they are actually bearing, you allocate them on an arbitrary number to get that number up and to raise package costs.